Buy-to-let mortgage rates tumble to a six year low – so is now a good time for landlords to invest or remortgage?

Buy-to-let fixed mortgage rates have tumbled to levels last seen in 2007, as the Funding for Lending Scheme continues to boost landlords.

The average buy-to-let fixed mortgage rate is now 4.69 per cent.

One year ago it was 5.04 per cent and three years ago it was 5.77 per cent.

And just five months ago, as the £80billion Government scheme launched, the average was 5.09 per cent, according to data from comparison website Moneyfacts.

It added the average rate across the top ten lowest rates for two-year fixed deals is 3.35 per cent compared to 3.69 per cent a year ago.

Landlords had a tough time obtaining mortgages after the market peak in 2007, as lenders rapidly withdrew from the market. In fact, even with the current mini-boom, lending to landlords is
about half of what it was six years ago.

But
momentum is building, with buy-to-let mortgage lending growing at 20
per cent a year, which is similar to the rise in tenant demand in some
regions, notably London and the South East.

A
knock-on effect of the mortgage drought that followed the banking
crisis of 2008 was that fewer people could borrow to buy and had to rent
instead.

This
increased tenant demand and has pushed up rents. According to the latest
Census figures, the proportion of British households renting has
increased in the past decade from 31 per cent to 36 per cent.

The
average monthly rental price has risen from £660 to £734 in three
years, according to LSL Property Services and have risen even higher in
the South East. At the same time house prices have remained steady. This
is resulting in the potential for 'golden' yields.

Banks and building societies that initially pulled away from 'riskier' buy-to-let lending in the wake of the credit crunch, have shifted back into it and are keen to lend to landlords, who tend to have big deposits to put down and rental income that can be checked up on. Lenders have also been encouraged by buy-to-let repossessions and arrears being lower than expected.

Landlords
typically need a 25 per cent deposit, making the business less risky
for lenders, they will also be required to have rental income of at least 125 per cent of monthly mortgage payments.

As
a result, National Landlords Association (NLA), the biggest trade body
for professional landlords, is lobbying for lenders to improve their
deals further.

David
Cox, its policy adviser, said: ‘Our research shows on third of landlords
have been unable to expand due to difficulties accessing finance.
Greater competition and innovation from lenders is needed.’

Average rents: Have been going up year-on-year as more people rent rather than own their own property

What are the best buy-to-let mortgage deals?

Rachel Springall, expert at Moneyfacts, says the average buy-to-let fixed rate is one of the lowest it has recorded since June 2007.

She says the best two year fixed buy-to-let is from The Mortgage Works – Nationwide’s landlord lending arm - at 3.19 per cent, with a 75 per cent loan-to-value (LTV). This comes with a 3.5 per cent fee.

A year ago, she says the best two-year fix was from Northern Rock at 3.25 per cent. This also came with a 3.5 per cent arrangement fee, but a far higher 60 per cent LTV.

For first-time landlords, the best two-year fixed rate is with Coventry Building Society at 3.29 per cent, fixed until 31 January 2015 at 65 per cent LTV with a £1,999 fee according to Moneyfacts. She says a year ago, the Northern Rock offer was also the best deal for first-time landlords.

She said: ‘Since the Funding for Lending Scheme was launched in August, fixed buy-to-let rates have been falling. The average rate across the top ten lowest rates for two-year fixed deals is 3.35 per cent compared to 3.69 per cent a year ago.

‘In addition the average fixed rate for all buy-to-let deals overall is at its lowest point in six years at 4.69 per cent. As the buy-to-let market thrives, there may well be a few investors considering building a property portfolio while rates are low. However, investors must consider the overall package including any fees and incentives, as additional costs can soon mount up.’

AS RENTERS RISE, LANDLORDS HUNT FOR LOWER RATES

By Richard Dyson, Financial Mail on Sunday

Landlord
Tristan Compton - pictured right - who lives near Edinburgh, bought his first property in
2003 and since then has experienced all phases of the lending market,
from feast to famine.

He now owns nine buy-to-let properties in
Edinburgh, London and the North.

‘When I first started, credit was easy to come by,’ he says. ‘It is
much harder now.

'I would be interested in growing my portfolio, but
funding is an issue – lenders remain restrictive.’

Mr Compton's experience reflects how while lenders have cut rates on individual mortgages, they have also put in place tougher limits on maximum portfolio value or number of properties.

Percentage fee vs flat fee can make a huge difference

Landlords need to weigh up the deals. Although the Mortgage Works offers the lowest rate, the 3.5 per cent fee is substantial. On a £200,000 property for example, this would represent an eye-watering £7,000 fee.

Landlord Centre, the online buy-to-let mortgage specialist, is for example offering two new three year fixed-rate buy-to-let mortgages with Skipton Building Society at exclusive rates.

The deals are a 3.79 per cent fixed-rate up to 65 per cent LTV and a 4.19 per cent fixed-rate up to 75 per cent LTV – slightly lower than what the Building Society is offering on its website directly. Both products have a flat completion fee of £995 – so far lower than being charged a percentage - and come with a free valuation and free legals for remortgages.

Andy Young, chief executive at Landlord Centre, says: ‘2012 was a good year for the buy-to-let mortgage market with more lenders and products available for landlords to choose from. This has led to increased competition and 2013 has already seen some excellent buy-to-let rates being offered in the marketplace.

‘These two new buy-to-let exclusives with Skipton are very attractively priced – 0.2 per cent lower than previously – and include excellent incentives for remortgages. They should be popular with landlords looking to fix their monthly costs.’

Coventry Building Society is also offering a flat-fee, but at a higher £1,999. This 65 per cent LTV is for two-years at 3.29 per cent, so a slightly lower rate and a shorter period.

Is it a good time for landlords to remortgage?

Long-standing investors should now be benefiting from lower rates, as many will have fallen on to their lender's standard variable rate (SVR) and the low base rate of 0.5 per cent will have done them a favour.

This is especially true for many, as a lot of buy-to-let deals do not have typical SVRs but a revert rate that tracks the bank rate – essentially, they have become tracker mortgages. Unlike a traditional owner-occupier SVR these cannot be raised independently of the base rate, removing the risk of the kind of mortgage shock that has hit borrowers with banks such as Halifax.

However, some landlords will be sitting on an SVR rate that is higher than rates which have now become available – this leaves the decision, stick or twist?

It all depends on what landlords think will happen to interest rates in the near future. With many predicting a low rate for years to come, sitting on a base rate tracking SVR is an attractive option. But if a rate rise does come, those with a fixed-rate deal at 3.5 to four per cent could benefit.

Some landlords also have shorter term mortgages with an expiry date. This can be 10 or even five years, and having borrowed interest-only after this they will have to pay the bank back – or remortgage. With rates now dropping, many will now be considering taking out a fixed-rate deal.

Funding for Lending Scheme good for landlords, bad for savers

A number of lenders have dropped rates on specialist buy-to-let mortgages as a direct result of the Government’s £80billion Funding for Lending scheme.

The scheme has enabled banks and building societies to tap into cheap money from the Government and has resulted in lower personal loan and mortgage rates.

But on the flipside, savers have had a torrid time. Rates have dropped to some of the lowest levels ever seen.

This means that potential first-time buyers trapped in rental properties as they struggle to raise a deposit are not only being hit by higher rental costs eating into their income, but also lower savings rates resulting in their cash growing slower and making that elusive deposit for their prospective home even harder to build up.